Prof. Raj Kishore Panda* in Bhubaneswar, May 11, 2023: The term ‘Structural transformation/change’ is used in a very loose sense now-a-days. Contrary to the concept developed by Arthur Lewis, Simon Kuznets and other classical economists which signifies changes in sectoral composition of output and employment-from primary sector to secondary and tertiary sectors, the present day policy makers largely emphasize on changes in the value addition to GDP/GSDP giving less attention to sectoral shift in employment.

In case of India, we see that the country has adopted a growth pattern different from the conventional approach . The economy has preferred services sector as high productivity sector to achieve higher GDP growth by-passing industrial sector in the usual growth process.

Following this growth pattern the country has no doubt achieved higher GDP growth but without commensurate changes in the structure of employment – from low productivity activities to higher productivity activities. As a result the impact of growth in improving the earnings of the poor has been thwarted slowing down the poverty reduction. This situation is increasingly noticed in the post-liberalization period in the country.

At the regional level , based on the nature and speed with which structural change has taken place we classify states into two categories viz, the states showing higher growth in GSDP per capita but with higher incidence of poverty and others with increasing richness have been able to reduce poverty substantially.

This indicates that while in case of former category of states there has been increased emphasis on output aspect of growth leaving aside its distributional effect, the latter category of states are found succeeding in better diversifying labour away from agriculture and other traditional activities towards modern and high productivity sectors and thereby improving the earnings of the workers and managing to pull out of poverty sizeably.

Coming to the case of Odisha, it is often claimed by the policy analysts that the accelerated growth in state’s GSDP in the last two decades has been possible due to rapid structural changes that the state economy has undergone over the period. Studies in recent years have shown that GDP growth is not adequate to explain structural transformation of an economy.

More so, referring the case of Odisha a recent study while assigning ranks to the states on the importance of structural changes as the driver of growth (contribution of structural change to labour productivity) has placed the state on a very low position (10th rank among the 15 states). On the above conflicting backdrop, the present attempt is to make a reality check on how state’s GSDP growth is linked with structural change and suggest measures for making the current economic growth better benefiting the poor in the state.

Based on available data, we find that the state economy has achieved an average GSDP growth rate of about 8 per cent in the last two decades ( 2001-02 to 2018-19). In some years the growth in state GSDP is also found higher than the GDP growth rate at the national level.

However the trend in the growth rate over the period reveal violent year-to-year fluctuation. ompared to the all-India trends the state’s growth trend exhibit higher volatility. As a corollary to higher GSDP growth, the per capita growth trend in NSDP has also steadily increased from Rs 10987/- in 2001-02 to Rs 54109/- in 2011-12 and further to Rs 75797/- in 2018-19, yet all these growth prosperity is not shared by larger sections of the population in the state. The state houses 32.59 percent poor people – second highest percentage next to Bihar in the country (NITI Aayog, 2022).

Secondly, as regards the changes in sectoral contribution to State’s GSDP we find wide variation over the study period. Between 2001-02 and 2018-19 while the contribution of primary sector ( agriculture including allied activities) to state’s GSDP has shown a steady decline from 31.5 percent to 18.9 percent, the industrial and services sectors’ shares in state’s GSDP reveal wide annual fluctuation.

The secondary sector whose contribution to state’s GSDP was 22.1 percent in 2001-02 recorded a rise up to 2007-08 after which it has remained more or less stagnant. In case of the tertiary sector its share in state’s GSDP which was 46.4 percent in 2001-02 has exhibited frequent ups and downs during study period and ultimately has come down to 41.6 percent in 2018-19.

Podder and Mathavan (2022)have made a study of 19 major states examining the association of sectoral share of output with per capita GSDP over the period from 1999-2000 and 2018-19. Their findings reveal varying results across states. The inference from their study indicates that all the middle and low-income states have grown at a faster rate than high-income states but each state is found to be at different transitional stages of structural transformation. For Odisha no clear structural change in terms of sectoral output shift is noticed though the state economy has achieved a higher GSDP growth rate.

Structural transformation by way of shifting employment from low- productivity activities to higher -productivity activities raises workers’ productivity, enhances their income and thus becomes a potent force in reducing poverty in the country/ state. Looking from this angle, we observe that the agriculture sector characterized by low wages continues to dominate in providing employment in the state.

In 2004-05 while the agriculture including allied activities shared 69 percent of total employment in the state, it has come down to 62.25 percent in 2011-12 and further to 48 percent in 2018-19. In contrast the shares of secondary and tertiary sectors which employed 17.5 per cent and 13.60 percent workers in 2004-05 has gone to 22.64 and 15.13 percent in 2011-12 and further to 24.03 and 17.15 percent in 2018-19 respectively.

As regards extent of work force employed in low productivity activities other than agriculture we find that the state economy employs the second largest percentage of workforce in the unorganized sector (94 percent) next to West Bengal in the country. Since the workers employed in the unorganized sector are generally engaged in low productivity activities with bare minimum wages, amongst them a sizeable percentage are supposed to have been engaged in such activities having social opportunity cost either zero or close to zero. In the above situation the state achieving high per capita income may not have desired effect on social development and poverty reduction.

All these above discussion reveals that the state economy has no doubt achieved higher economic growth in recent decades yet the pattern of growth seems lacking in structural changes required to make the distributional effect of income favourable to people belonging to low income population.

Sectoral composition of Odisha’s growth seems to have been such that it has generated very few productive employment opportunities for the poor. It is very much a productivity growth rather than growth generated due to increase in employment. To ameliorate this situation there is need for increasing absorption of workers in the organized sector through skill development.

Since education is widely believed to provide workers greater occupational mobility and increasing share of educated workers in various jobs may raise their productivity and earnings smoothening structural change, the Government should make all-out efforts in developing quality education in the state.

*[Formerly, Professor of Economics, Utkal University and Director, Nabakrushna Choudhury Centre for Development Studies, Bhubaneswar.]

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